Wednesday, September 25, 2013

Flights out of Venezuela to anywhere are 100% sold out, months in advance. Yet many planes are flying half-empty. Why? The official exchange rate is 6.3 bolivars per dollar but the black market rate is more like 42 bolivars to the dollar. Few people are allowed to convert bolivars to dollars at the official rate but there is an exception for people with a valid airline ticket. As a result people with an airline ticket can convert bolivars to dollars at the official rate and then sell the dollars at the much higher black market rate. Reuters has the story:

“It is possible to travel abroad for free due to this exchange rate magic,” said local economist Angel Garcia Banchs.

The profit is realized from an arbitrage process known locally as “el raspao,” or “the scrape.”

Credit cards are used abroad to get a cash advance — rather than buying merchandise. The dollars are then carried back into Venezuela and sold on the black market for some seven times the original exchange rate.

The large profit margin easily absorbs the cost of flights and accommodation for a trip.

“I’ve been able to buy new clothes and give some cash to all my closest family members!” said one delighted Venezuelan lady, just back from a trip to Europe.

…Some Venezuelans do not even bother leaving the country, but merely send their credit cards to friends overseas, who swipe the cards and send the cash back to Venezuela.

“This is the reason many airlines are sending half-empty planes,” Ricardo Cusanno, head of a local tourism council, told Reuters, saying the government should cross-reference flight lists with those requesting foreign exchange to outwit the no-shows.

Friday, September 20, 2013

Recent statements by the Deputy Leader of the Opposition and the Leader of the green Party claiming that the Government has failed to diversify the N.Z. economy are revealing of at least two concerns:

The lingering notion that is the government’s role to “diversify economies” and that they should, forthwith, diversify. Worrying enough but likely to mean little more than the fact that the statement was made and endorsed for the usual petty reasons that seem to amuse politicians and make them feel better, but much more worrying is the possibility that:

These people and their followers believe that it is possible for the government to diversify the economy, that government “knows” how to do that, that having chosen to diversify it would be able to and that its a good idea.

These ideas are especially loathsome in N.Z. where we have had considerable and bitterly costly attempts to macro and micro manage economies in areas such as electricity production, fuel production, forestry, motor assembly, shoe manufacture, food manufacture and banking. In each case the result was heavy losses, eventual joblessness and high human costs as well as the imposition of high fiscal costs on generations.

Those struggling with the principles, the evidence and the experience simply need to do some serious – not politician’s – but serious study of history.

Monday, September 9, 2013

The latest monthly property value index shows that nationwide residential values continued to increase in August. Values have increased 8.5% over the past year, with an increase of 2.9% over the past three months. Values are now up 8.3% over the previous market peak of late 2007.